State Farm seeks emergency CA rate hike after $7.6B LA wildfire loss

• A California judge is weighing State Farm’s request for a 17% emergency rate hike. The insurer said $7.6 billion in wildfire payouts have left its reserves dangerously low.
• A consumer watchdog group argued policyholders shouldn’t bear the cost and claimed State Farm hadn’t provided enough financial proof for its rate hike.
• State officials support the increase, citing a broader crisis in the state’s home insurance market.

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A California judge will soon decide whether State Farm, the state’s largest insurance provider, can implement a 17% emergency rate hike for policyholders.

At a hearing in Oakland, California, on Tuesday, April 8, State Farm argued that it paid $7.6 billion in claims following recent wildfires in the Los Angeles area. The insurer says the payouts have severely depleted its financial reserves.

Consumer group pushes back

A consumer advocacy group opposes the rate increase, saying policyholders should not be held responsible for the financial fallout of California’s natural disasters.

“The way it’s been engineered by State Farm, it’s a fast track,” Harvey Rosenfield, founder of Consumer Watchdog, said. “They want the commissioner to approve their rate increase now, and then figure it out later whether it was justified or not.”

The group demanded proof from State Farm that the rate hike is necessary, suggesting the company has not sufficiently demonstrated its financial need.

State officials show support for rate increase

State officials appear receptive to the proposed increase, noting the worsening condition of California’s home insurance market. During the hearing, State Farm stated it has been losing money in California over the past decade.

Other major insurers, including Allstate and Farmers, have either exited the market or limited coverage in the state due to the growing risks associated with wildfires.

State Farm’s proposed emergency rate hike would affect all of its policyholders in California. The company says the increase is necessary to “refill its cash reserve,” warning that without it, it may not be able to pay out future claims if another disaster strikes.

Provisional approval already granted

The California Department of Insurance provisionally approved the rate hike in March. A judge will make the final decision following this week’s multi-day hearing, which is expected to conclude Thursday, April 10.

Attorneys for the Department of Insurance strongly supported the rate hike during the hearing, comparing the state’s insurance crisis to a sinking ship.

“Normal rules don’t apply. We’re on the Titanic, and we see the iceberg,” department attorney Nikki Kennedy said. “Now is not the time to argue about where to put the deck chairs. There is still time, your honor, to turn this ship around. If we don’t, over three million Californians are going in the water. And there are not enough lifeboats.”

A ruling is expected within 10 days.